Fastow, Wife, Eight Other Enron Execs Indicted on Fraud Charges

Following more than a year of investigations into Enron Corp., former top executives, including the wife of indicted CFO Andrew Fastow, were led in handcuffs into the Houston Federal Courthouse Thursday, where they were charged in various fraud schemes. Fastow, already under indictment on 78 counts of fraud and embezzlement, also was indicted Thursday with 31 additional criminal charges.

A Houston grand jury, which has been meeting secretly, returned the sealed indictments on Tuesday. The superseding indictment against Andrew Fastow added charges of fraud, insider trading and falsifying Enron's accounting records. A six-count indictment also was returned charging Fastow's wife, former assistant treasurer Lea Fastow, with conspiracy to commit wire fraud, money laundering, conspiracy and filing false tax returns.

"Today's indictments are a significant milestone in our determined efforts to expose and punish the vast array of criminal conduct related to the collapse of Enron Corporation," said Larry Thompson, deputy attorney general for the U.S. Department of Justice. Thompson is leading the department's Corporate Fraud Task Force. He noted, "The indictments today do not end, by any means, our investigation."

Lea Fastow's defense team has characterized her arrest as an attempt to "strong-arm her husband to turn against his bosses," former CEO Jeffrey Skilling and former Chairman Ken Lay. Andrew Fastow reported directly to Skilling. Lea Fastow, 41, joined Enron in 1990, leaving in 1997. In addition to working as assistant treasurer, Lea Fastow also was pivotal in helping Enron acquire a world-class art collection, which is now being auctioned. In a written statement, her lawyers said, "Lea Fastow is innocent. Mrs. Fastow has done nothing wrong, and she had nothing to do with the fall of Enron."

Another 218-count superseding indictment expanded charges related to the bankrupt company's communications unit, Enron Broadband Services (EBS). The indictment charges seven former employees of the unit, together with two previously indicted former executives, with several fraud and money laundering schemes. The ex-employees are accused of orchestrating a scheme to mislead investors in a series of misleading statements about the emerging business unit. Prosecutors contend, however, that EBS never generated any revenue and was abandoned shortly before the company filed for bankruptcy protection in December 2001.

According to the indictments, five of the former EBS executives sold large amounts of Enron stock while they knew the division was failing, and in turn, reaped about $186 million in profits. The government is seeking forfeiture of more than $100 million of those profits.

Most of the former executives surrendered at Houston's FBI headquarters, while Lea Fastow was accompanied by her husband and lawyers as she turned herself in to the Internal Revenue Service in Houston early Thursday. In an agreement with prosecutors, former executive Rex Shelby was allowed to attend to a family emergency. All of the defendants were taken to Houston's downtown federal courthouse in handcuffs to be charged and arraigned. Prosecutors said once they posted bail they would be released.

Those indicted Thursday included Ken Rice and Joe Hirko, co-CEOs of EBS; Kevin Hannon, COO of EBS; former finance executive vice president Dan Boyle; and executives F. Scott Yeager and Shelby.

Also indicted were Ben Glisan Jr. and Boyle, who also surrendered Thursday. They have been charged with securities fraud, insider trading, falsifying accounting records and tax fraud. Glisan had worked directly under Andrew Fastow, and was fired in November 2001 after it was revealed that he and another managing director, Kristina Mordaunt, both apparently had stakes in at least one of Enron's questionable limited partnerships (see Daily GPI, Nov. 12, 2001). Before his departure, Glisan also had been involved in managing the EBS unit.

Rice left Enron several months before Enron declared bankruptcy, selling about 1.2 million shares of stock for more than $76 million. He had been CEO of Enron's trading unit, then called Enron Capital and Trade, from June 1996 to June 1999. He then was promoted to lead EBS. Hirko had been chairman and CEO of EBS before Rice took over. Hirko left Enron in 2000 and is alleged to have sold about 473,000 shares of Enron stock for $35.1 million between June 1996 and November 2001.

Hannon, quit Enron in August 2001. He had also been president of Enron's trading and commodities business, and is alleged to have profited by selling millions of dollars worth of stock. Glisan was hand-picked by Skilling as Enron's treasurer in March 2000. In turn, he earned $1 million in May 2000 on a $5,826 investment he made in March 2000 in the Southampton Place partnership put together by Fastow. Glisan was fired from Enron in November 2001. Prosecutors also have frozen about $916,000 in a bank account in Glisan's name.

U.S. Magistrate Marcia Crone received the sealed indictments Wednesday from the foreman of the Enron grand jury, where reporters have been barred since the beginning of the hearings (see Daily GPI, May 1). Besides Andrew Fastow, superseding indictments also were returned Thursday against former EBS executives Kevin Howard and Michael Krautz, who were earlier charged with securities fraud, wire fraud, conspiracy and lying to the FBI about a fraudulent scheme involving a video-on-demand contract between Enron and Blockbuster, the retail video store chain (see Daily GPI, March 13).

Last August, former executive Michael J. Kopper pleaded guilty to two counts of felony conspiracy to commit wire fraud and money laundering (see Daily GPI, Aug. 22, 2002 ). He is cooperating with the Department of Justice in its investigations as part of an agreement, and apparently has been instrumental in the latest charges.

In related news, the Securities and Exchange Commission (SEC) on Thursday filed a lawsuit against Rice, Hirko, Hannon, Yeager and Shelby, charging them with civil fraud and insider trading that earned them more than $150 million in illegal profits. The lawsuit, filed in Houston, asks the men to pay back the profit as well as unspecified fines. The SEC previously has charged former EBS executives Howard and Krautz with falsifying records and quarterly reports.

To date, 19 former Enron employees have been charged in the investigation. However, no civil or criminal indictments against Skilling or Lay have been filed by the government. Both Skilling and Lay have repeatedly stated they knew nothing of any illegal or improper activities.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.